India Needs Massive Capital to Catch China Growth, Roubini Says

By Rajhkumar K Shaaw
March 31 (Bloomberg) -- India has a "massive" need for capital to catch China’s growth rate and fully benefit from a global shift in economic power to emerging markets, said Nouriel Roubini, the economist who predicted the financial crisis.
"China has been a hare and India a tortoise but growth is accelerating in India," Roubini said yesterday. "There is a massive need for both human and physical capital."
As the U.S., Europe and Japan struggle to recover from the worst recession since World War II, India’s main stock- market index has soared over the last 12 months and its economy may grow 8.2 percent in the year starting April 1, the fastest in two years, the finance ministry said in February. Chinese gross domestic product grew 10.7 percent in the three months through December, the quickest pace since the fourth quarter of 2007.
Emerging markets are set for a V-shaped recovery, and the positive aspect about India is that its economy is less dependent on exports compared with China, Roubini said.
India requires "physical capital in the form of infrastructure that can be provided by both by public and private investments or private-public partnerships," Roubini said. The South Asian nation also needs to invest in human capital, innovation and land reform and "maintain social stability," he said.
"China might be facing a greater challenge in maintaining its double-digit growth rate than India is facing in achieving a double-digit growth," he said. Roubini favors the "more balanced economy of India" over China.

‘Bright Spots’

While the economies of India and China are not large enough to lead global growth, emerging markets remain "bright spots"
compared with the U.S., Europe and Japan, which all face deflationary pressures, Roubini said at a conference organized by Edelweiss Capital Ltd. in Mumbai.
"The size of the emerging markets is going to become larger and larger, and it’s going to become greater than the GDP of the United States," Roubini said. "It may take 20 to 30 years, depending on relative economic growth, but the process will occur" and "we should get used to it."
Financial markets in the U.S. and Europe, meanwhile, are "still damaged" from the crisis and U.S. economic growth may slow in the second half as stimulus measures are phased out and the job market remains "weak," Roubini said. The U.S. recovery may be U-shaped, he said.
Asian nations from China to India have begun withdrawing monetary stimulus to avert asset bubbles and curb inflation as their economies rebound. Any declines in Indian stocks are an opportunity to add to holdings, Zurich-based Bank Julius Baer & Co. said this week. Investor Mark Mobius this month predicted the nation’s stocks will outperform other emerging markets.

Sensex Surges

India’s Sensex index has surged 82 percent in the past year as is set for its fifth straight quarterly gain, the longest expansion since 1994. On March 19, the central bank raised the benchmark reverse repurchase rate by a quarter of a percentage point to 3.5 percent and the repurchase rate by the same amount to 5 percent.
India’s stocks will withstand the stimulus withdrawal and extend last year’s rally, the biggest in 18 years, as domestic spending strengthens, John Praveen, the Newark, New Jersey-based chief investment strategist at Prudential International, a unit of Prudential Financial, which oversees
$667 billion, said in a March 26 interview.